Standard Costing: Transactions Posting to the Inventory Distribution Journals

Purchasing Transactions

The following transactions are posted to the inventory distribution journal named PO Dist.

• Purchase Order Receipt:

  	Debit	Credit
  Inventory	xxxx
  Vouchers Payable		xxxx
  Purchase Variance	xxxx   or	xxxx

  Note:  Since this transaction is for a purchased item, only inventory material cost details component is posted.
  • Inventory = (quantity received * standard unit cost from the Items form)
  • Vouchers Payable = (quantity received * po unit cost)
  • Purchase Variance = (qty received *(std unit cost - po unit cost))

  The amount that inventory is debited is the quantity received multiplied by the item's standard unit cost:

  AID = QR * ISUC

  where:

  • AID = Amount that Inventory is Debited
  • QR = Quantity Received
  • ISUC = Item's Standard Unit Cost

  Vouchers Payable is credited with quantity received multiplied by the purchase order line item unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost, the purchase cost variance account is either debited or credited with the difference, which balances the transaction.

  If (ISUC - POUC) >> 0, then PCVA = DD or CD

  where:

  • ISUC = Item's Standard Unit Cost
  • POUC = Purchase Order Line Item Unit Cost
  • PCVA = Purchase Cost Variance Amount
  • DD = Debited with the Difference
  • CD = Credited with the Difference
• Purchase Order Return:

  	Debit	Credit
  Vouchers Payable	xxxx
  Inventory		xxxx
  Purchase Variance	xxxx or	xxxx

  Note:  Since this transaction is for a purchased item, only inventory material cost details component is posted.
  • Vouchers Payable = (quantity returned * po unit cost)
  • Inventory = (quantity returned * Items standard unit cost)
  • Purchase Variance = (qty returned *(std unit cost - po unit cost))

  The amount that vouchers payable is debited is the quantity returned multiplied by the purchase order unit cost. Inventory is credited with quantity returned multiplied by the item's standard unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost the purchase cost variance account is either debited or credited with the difference, which balances the transaction.

• Voucher Generation:

  	Debit	Credit
  a. If vouchered cost is greater than receipt cost:
  Vouchers Payable	xxxx
  Purchase Variance	xxxx
  Accounts Payable		xxxx
  b. If vouchered cost is less than receipt cost:
  Vouchers Payable	xxxx
  Purchase Variance		xxxx
  Accounts Payable		xxxx

  The previous transaction is created only if any line items were vouchered at a different cost than the cost at which they were received into inventory. (The cost at which the items were received into inventory is the line item unit cost field at the time of the receipt.)

  Variance = (VP - AP)

  where:

  • VP = (qty vouchered * received cost)
  • AP = (qty vouchered * vouchered cost)

Production Transactions

The following transactions are posted to the inventory distribution journal named SF Dist.

• Job Material Issue:

  	Debit	Credit
  WIP Material	xxxx
  WIP Labor	xxxx
  WIP Fixed Overhead	xxxx
  WIP Variable Overhead	xxxx
  WIP Outside	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx
  Fixed Material Overhead Applied		xxxx
  Variable Material Overhead Applied		xxxx

  At the time of issue, the work in process account is debited with the total standard cost of the material being issued plus the fixed and variable material overhead amounts:

  WIPA = MC + (FMO * MC) + (VMO * MC)

  where:

  • WIPA = WIP Amount
  • MC = Material Cost
  • FMO = Fix Material Overhead
  • VMO = Variable Material Overhead

  MC = SUC * QI

  where:

  • MC = Material Cost
  • SUC = Standard Unit Cost of Material
  • QI = Quantity Issued

  Inventory is credited with the material cost shown above. The Overhead accounts are credited with the material cost multiplied by the material overhead rates.

• Job Material Withdrawal:

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  WIP Material		xxxx
  WIP Labor		xxxx
  WIP Fixed Overhead		xxxx
  WIP Variable Overhead		xxxx
  WIP Outside		xxxx

  The amount used is the quantity withdrawn multiplied by the item's standard unit cost.

• Post Job Transaction:

  	Debit	Credit
  WIP Material	xxxx
  WIP Labor	xxxx
  WIP Fixed Overhead	xxxx
  WIP Variable Overhead	xxxx
  WIP Outside	xxxx
  Direct Labor Applied		xxxx
  Fixed Overhead Applied		xxxx
  Variable Overhead Applied		xxxx
  Labor Rate Variance	xxxx or	xxxx
  Labor Usage Variance	xxxx or	xxxx
  Fixed Overhead Usage Variance	xxxx or	xxxx
  Variable Overhead Usage Variance	xxxx or	xxxx

  Work in process (WIP) is debited (increased) by what the labor and overhead should be for the transaction entered based on the standard run and setup times in the Job Operations record and the standard setup and run rates in the Work Centers form. The calculation varies depending on the type of job transaction being processed.

  WIP amount for (S)etup transaction =

  [(SSH * WCSSR) * EFFICIENCY FACTOR]+

  [(SSH * DFOR) * EFFICIENCY FACTOR] +

  [(SSH * DVOR) * EFFICIENCY FACTOR]

  where:

  • SSH = Standard Setup Hours
  • WCSSR = Work Center Standard Setup Rate
  • DFOR = Department Fixed Overhead Rate
  • DVOR = Department Variable Overhead Rate

  WIP amount for (R)un Transaction =

  [(AP * SRHU * WCSRR) * EFFICIENCY FACTOR] +

  [(AP * SRHU * DFOR) * EFFICIENCY FACTOR] +

  [(AP * SRHU * DVOR) * EFFICIENCY FACTOR]

  where:

  • AP = Actual Pieces
  • SRHU = Standard Run Hours (Labor) per Unit
  • WCSRR = Work Center Standard Run Rate
  • DFOR = Department Fixed Overhead Rate
  • DVOR = Department Variable Overhead Rate

  Direct labor applied, fixed overhead applied, and variable overhead applied amounts are based on the actual hours reported for the transaction:

  WIP Amount for (C) Machine Transaction =

  [(AP * SRHMU * WCFOR) * Efficiency Factor] +

  [(AP * SRHMU * WCVOR) * Efficiency Factor]

  where:

  • AP = Actual Pieces
  • SRHMU = Standard Run Hours (Machine) per Unit
  • WCFOR = Work Center Fixed Overhead Rate (Machine)
  • WCVOR = Work Center Variable Overhead Rate (Machine)

  FO = (AH * DFOR) or (M * MFOR)

  where:

  • FO = Fixed Overhead
  • AH = Actual Hours (Labor)
  • DFOR = Department Fixed Overhead Rate
  • M = Material
  • MFOR = Material Fixed Overhead Rate

  VO = (AH * DVOR) or (Material * MFOR)

  where:

  • VO = Variable Overhead
  • AH = Actual Hours (Labor)
  • DVOR = Department Variable Overhead Rate
  • M = Material
  • MFOR = Material Fixed Overhead Rate

  An entry is made for labor rate variance if there is any difference between the actual employee manufacturing rate and the work center standard pay rate:

  LRV = (MR - SR) * AH

  where:

  • LRV = Labor Rate Variance
  • SR = Standard Rate
  • MR = Manufacturing Rate
  • AH = Actual Hours (Labor)

  A labor usage variance, fixed overhead variance, and variable overhead variance are posted if the actual hours are less than (<) or greater than (>) the time it should have taken to complete the pieces that were reported:

  LUV = ((((SRHU / EF) * PC) - AH) * SPR)

  where:

  • LUV = Labor Usage Variance
  • SRHU = Standard Run Hours per Unit
  • PC = Pieces Complete
  • AH = Actual Hours (Labor)
  • SPR = Standard Pay Rate
  • EF = Efficiency Factor (100/ER)
  • ER = Efficiency Rate
  • WCSSR = Work Center Standard Setup Rate

  SET-UP: LUV = ((SSHU - AH) * WCSSR) / ER

  FOUV = (((SRHU / EF) * PC) - AH) * DFOR)

  where:

  • FOUV = Fixed Overhead Usage Variance
  • SRHU = Standard Run Hours per Unit
  • PC = Pieces Complete
  • AH = Actual Hours (Labor)
  • DFOR = Department Fixed Overhead Rate
  • SSHU = Standard Setup Hours per unit
  • EF = Efficiency Factor (100/ER)
  • ER = Efficiency Rate

  SET-UP: FOUV= ((SSHU - AH) * DFOR) / ER

  VOUV = (((SRHU / ER)* PC) - AH) * DVOHR)

  where:

  • VOUV = Variable Overhead Usage Variance
  • SRHU = Standard Run Hours per Unit
  • PC = Pieces Complete
  • AH = Actual Hours (Labor)
  • DVOHR = Department Variable Overhead Rate
  • SSHU = Standard Setup Hours per Unit
  • ER = Efficiency Rate

  SET-UP: ((SSHU) - AH) * DVOHR) / ER

  FMOUV = (((SRHU / ER) * PC) - AH)) * WCFOR

  where:

  • FMOUV = Fixed Machine Overhead Usage Variance
  • SRHU = Standard Run Hours (Machine) Per Unit
  • PC = Pieces Complete
  • AH = Actual Hours (Machine)
  • WCFOR = Work Center Fixed Overhead Rate (Machine)
  • ER = Efficiency Rate

  VMOUV = (((SRHU / ER) * PC)- AH)) * WCVOR

  where:

  • VMOUV = Variable Machine Overhead Usage Variance
  • WCVOR = Work Center Variable Overhead Rate (Machine)
  • ER = Efficiency Rate
• Job Finish (Put to Stock):

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  WIP Material		xxxx
  WIP Labor		xxxx
  WIP Fixed Overhead		xxxx
  WIP Variable Overhead		xxxx
  WIP Outside		xxxx

  Both inventory and WIP are posted with the quantity being put to stock multiplied by the Items form's standard unit cost of the item being moved to inventory.

  xxxx = (quantity completed * Items standard unit cost)

• Job Close:

If the quantity of any material issued is more or less than the standard quantity required, the following accounts are adjusted:

• Material Usage Variance
• Fixed Material Overhead Usage Variance
• Variable Material Overhead Usage Variance
• WIP Material
• WIP Labor
• WIP Fixed Overhead
• WIP Variable Overhead
• WIP Outside

The material usage variance amount is the difference between the standard quantity required and the actual quantity issued, extended by the standard cost of the material.

The overhead variance amounts are material usage variance extended by the fixed and variable material overhead rates.

If subsequent to this transaction there is any remaining WIP amount (+ or -), the following adjustment is made.

This transaction may be necessary since the WIP account is increased with amounts that are based on the standard times and rates that are established for the job. The decrease of the WIP in the job finish transaction is based on the standard cost of the item being manufactured. If the total standards for the job do not match the standard unit cost of the item, this adjustment to WIP needs to be made.

If the job is not closed at the time the job transaction is posted, the above transaction is posted at the time the status of the job is manually changed from (R)eleased to (C)omplete.

Customer Order Transactions

The following transactions are posted to the inventory distribution journal named CO Dist.

• Customer Order Shipment:

  	Debit	Credit
  COGS Material	xxxx
  COGS Labor	xxxx
  COGS Fixed Overhead	xxxx
  COGS Variable Overhead	xxxx
  COGS Outside	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside	xxxx

  This transaction is processed using the quantity shipped and the item's standard unit cost:

  xxxx = (quantity shipped * Items form's standard unit cost)

• Customer Order Return:

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  COGS Material		xxxx
  COGS Labor		xxxx
  COGS Fixed Overhead		xxxx
  COGS Variable Overhead		xxxx
  COGS Outside		xxxx

  This transaction is processed using the quantity returned and the item's standard unit cost:

  xxxx = (quantity returned * Items form's standard unit cost)

Inventory Control Transactions

The following transactions (unless otherwise specified) are posted to the inventory distribution journal named IC Dist.

• Inventory Adjustment Transaction:

  	Debit	Credit
  a. Increase quantity:
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  Inventory Adjustment		xxxx
  b. Decrease quantity:
  Inventory Adjustment	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx

  The amount used for an inventory adjustment transaction is the adjustment quantity multiplied by the standard unit cost of the item.

  Cycle counting and physical inventory posting create transactions like the transactions depicted previously. Either transaction a or b is created, depending on whether the count quantity is greater than (>) or less than (<) the original quantity.

• Inventory Move:

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx

  This transaction is only posted if the From and To locations specified on the form have different inventory accounts tied to them. The amount used is the move quantity times the standard unit cost.

• Location Update:

  A transaction is created if you change the inventory account tied to the location. (The example assumes that all cost details accounts are changed.)

  	Debit	Credit
  Inventory (New accounts)
  Inventory Material Cost  1101	xxxx
  Inventory Labor Cost 1102	xxxx
  Inventory Fixed Overhead Cost  1103	xxxx
  Inventory Variable Overhead Cost 1104	xxxx
  Inventory Outside Cost 1105	xxxx
  Inventory (Old accounts)
  Inventory Material Cost  1001		xxxx
  Inventory Labor Cost  1002		xxxx
  Inventory Fixed Overhead Cost  1003		xxxx
  Inventory Variable Overhead Cost 1004		xxxx
  Inventory Outside Cost 1005		xxxx

  The amount used is the quantity at the location multiplied by the standard unit cost of the item.

• Location Insertion:

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  Inventory Adjustment		xxxx

  This transaction is only posted if a quantity is entered for the location at the same time it is added. The amount is the quantity entered multiplied by the item's standard unit cost.

• Roll Current Cost to Std Cost utility:

  	Debit	Credit
  a. If the new standard is greater than (>) old standard:
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  Inventory Adjustment		xxxx
  b. If the new standard is less than (<) old standard:
  Inventory Adjustment	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx

• Miscellaneous Receipt:

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  Account Entered		xxxx
  Purchase Cost	xxxx	xxxx

  The amount used is the quantity entered multiplied by the item's standard unit cost.

  The credit account is the GL account number entered by you. The account defaults to the item's Inventory Adjustment account.

  All variances are posted to the account found in the Purchase Cost field on the item's Product Codes form.

• Miscellaneous Issue:

  	Debit	Credit
  Account Entered	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx

  The amount used is the quantity entered multiplied by the item's standard unit cost.

  The debit account is the GL account number you entered. The account defaults to the item's Inventory Adjustment account.

• Job Issue:

  The following transactions are posted to the inventory distribution journal named SF Dist.

  	Debit	Credit
  WIP Material	xxxx
  WIP Labor	xxxx
  WIP Fixed Overhead	xxxx
  WIP Variable Overhead	xxxx
  WIP Outside	xxxx
  Inventory Material		xxxx
  Inventory Labor		xxxx
  Inventory Fixed Overhead		xxxx
  Inventory Variable Overhead		xxxx
  Inventory Outside		xxxx
  Fixed Material Overhead Applied		xxxx
  Variable Material Overhead Applied		xxxx

  At the time of issue, the work in process account is debited and the inventory account is credited with the standard unit cost of the item issued multiplied by the quantity issued plus overhead. At the time of job close, the material quantity variance is calculated, the work in process account debited, and the material usage variance account credited.

  	Debit	Credit
  Material Usage Variance		xxxx
  WIP Material	xxxx
  WIP Labor	xxxx
  WIP Fixed Overhead	xxxx
  WIP Variable Overhead	xxxx
  WIP Outside	xxxx

• Job Receipt:

  The following transactions are posted to the inventory distribution journal named SF Dist.

  	Debit	Credit
  Inventory Material	xxxx
  Inventory Labor	xxxx
  Inventory Fixed Overhead	xxxx
  Inventory Variable Overhead	xxxx
  Inventory Outside	xxxx
  WIP Material		xxxx
  WIP Labor		xxxx
  WIP Fixed Overhead		xxxx
  WIP Variable Overhead		xxxx
  WIP Outside		xxxx

  Both inventory and WIP are posted with the quantity being put to stock multiplied by the Item Maintenance standard unit cost of the item being moved to inventory.

  xxx = (quantity completed * item standard unit cost)

  If, subsequent to this transaction, there is any remaining WIP amount (+ or -) the following adjustment is made.

  	Debit	Credit
  a. If remaining WIP amount is greater than (>) 0:
  Other WIP Variance (Routing Variance)	xxxx
  WIP Material		xxxx
  WIP Labor		xxxx
  WIP Fixed Overhead		xxxx
  WIP Variable Overhead		xxxx
  WIP Outside		xxxx
  b. If remaining WIP amount is less than (<) 0:
  WIP Material	xxxx
  WIP Labor	xxxx
  WIP Fixed Overhead	xxxx
  WIP Variable Overhead	xxxx
  WIP Outside	xxxx
  Other WIP Variance (Routing Variance)		xxxx